A Distorted Trade Pattern Isn’t An Advantage
We were treated this week, by Chris Giles of the Financial Times, no less, to an amazingly convoluted piece of logic. To support the constantly repeated refrain that Britain has no option but to stay in the EU, because there are no other viable choices available, he asserts that we derive unmatchable trade advantages by virtue of the simple fact of our geographical proximity to the European market.
He supports this assertion by pointing to two comparisons which he apparently finds convincing. New Zealand and the Czech Republic are economies of roughly the same size, but the UK does nearly four times as much trade with the latter as with the former, he says, and he goes on to make a similar point when comparing our trade with Australia and Spain.
This demonstrates, he says, that our easy physical access to the European market makes all the difference. Leave the EU, and we would lose that irreplaceable benefit.
This argument is so full of holes that it is surprising that Mr Giles thought it worthwhile to make it. First, it would be hugely surprising if the figures did not show that kind of pattern – an increase in our trade with the EU and a comparative decline with the world outside. What, after all, was the whole exercise about, if not to concentrate our trade in Europe and divert it from elsewhere?
If more than 40 years of managed (rather than free) trade, in which a customs union on the one hand and tariff barriers on the other have quite deliberately and systematically narrowed our trading opportunities, we would surely be able to sue for false pretences if something of the kind Mr Giles celebrates had not materialised.
But that entirely predictable outcome is far from settling the question as to whether it is inevitable or even desirable, or whether it renders other outcomes beyond reach. And the UK is surely the last country to be told that trade is something best done at close quarters. No other country has enjoyed more extensive trade links or has a longer or more successful experience of the great advantages of trading on a world-wide scale.
In line with the consistent pessimism that tells us we must accept the European option, since it is the best we can expect, it is often forgotten that joining the Common Market in 1972 represented for Britain a restriction of our trading opportunities and an abandonment of a rational and long-established trading pattern that was mutually beneficial for both ourselves and our partners.
That pattern had provided the British consumer with not only the cheapest and most efficiently produced food and raw materials from around the globe, but also preferential markets for British manufactured goods overseas.
That in turn allowed a cheap food policy at home (using subsidies to farmers to bridge the gap between the costs of domestic and foreign production), and cheap food in turn meant that manufacturing costs could be kept down, thereby creating a significant competitive advantage over Britain’s otherwise more competitive manufacturing rivals.
Common Market membership brought an end to these advantages. It meant, through the Common Agricultural Policy, to whose costs Britain was and remains a major contributor, a substantial increase in food prices and therefore in domestic costs, making British manufactured goods more expensive. It also meant an end to preferential markets for those goods overseas, and opened us up instead to direct competition from more efficient manufacturing rivals in a single European marketplace.
Today, in a country like New Zealand, British cars and other manufactured goods are rarely seen. They are little lamented, since the British market for New Zealand produce is also much reduced. Can we be surprised that trade with New Zealand, Australia, and other Commonwealth countries (which now include some of the world’s fastest developing economies) has languished? Didn’t we guarantee that outcome?
But what of the other side of the coin? Have we not derived great advantage from the trade we have developed with the EU?
Well, hardly. Let us put to one side the very large annual contribution we pay to the EU (a continuing burden, as it happens, on our balance of payments). We have now run a trade deficit every year since 1982, which was just as the full impact of EU membership took effect– not just a coincidence, since the greater part of that deficit is with the other members of the EU, and much it arises in the trade in manufactured goods.
The result is that our manufacturing sector has shrivelled away, and our net investment in new manufacturing capacity is virtually nil – not really the kind of success that Mr Giles wishes to celebrate and that we are told we cannot afford to lose. And, when we are solemnly warned that our EU partners will refuse to trade with us if we insist on a different and better Europe, are they really going to turn their backs on a one-sided trade relationship that has been so much to their advantage?
Mr Giles has, however, effectively made one point. The essence of what he is saying is that we cannot survive without the current lopsided arrangements, however detrimental they are to our interests. The weakness of his argument tells us that we shouldn’t believe a word of it.
Bryan Gould
26 February 2016
Proud to be a Socialist?
An amazing thing is happening in the primary elections for the American presidency – and it’s not Donald Trump. Mr Trump, in any case, “doesn’t like losers” and, having lost in Iowa, should presumably now be “re-considering his position”.
The amazing thing is happening on the other side of the political divide. The Iowa primary ended in a virtual dead-heat between Hillary Clinton, the Democratic front-runner and assumed shoo-in, and 74 year-old Bernie Sanders, the Senator from Vermont, who started the race as a virtual no-hoper.
Hillary Clinton, by far the best-known of the Democratic candidates, carries some baggage as a consequence, and there will be those who claim to have foreseen that her less than spotless record would eventually catch up her. But the real surprise is not her relatively poor showing, but the rise to prominence of the elderly and hitherto little-known Bernie Sanders.
It has been widely assumed that Senator Sanders is to all intents and purposes unelectable. His age and relative obscurity would in any case count against him, but the real disqualification, it is believed, is that he is a self-declared socialist.
It is hard to think of a label that would more surely destroy a candidate’s chances in an American primary election. This is a country in whose politics even the term “liberal” is a dirty word and is used as an attack weapon in much of the political discourse.
A “socialist” is even further beyond the pale. The political right in the US has invested huge effort and resources in convincing American voters that socialism is akin to – even identical with – communism, and is fundamentally un-American.
No candidate in his or her right (or even left) mind would willingly allow even a whiff of such a label to taint their campaign. So how does a candidate who not only embraces it and uses it proudly as a banner manage to do so well with the voters – in Iowa and possibly elsewhere as well?
He is, after all, flying in the face of conventional wisdom, not only in the US but in much of the English-speaking world. Left-of-centre politicians in New Zealand, the UK, Australia and Canada, long ago conceded that to be labelled as a socialist is the kiss of death.
That concession is, of course, all of a piece with the loss of intellectual self-confidence that has afflicted the left in the English-speaking democracies. Not content with failing to challenge the right on their analysis of what constitutes a successful economic policy, or of how a strong and healthy society can tolerate growing inequality, or of what is the proper role of government, left politicians have conceded the language of politics as well.
The banner that was once flown proudly by those who proclaimed the virtues of greater equality, of a fair deal for all, of an inclusive economy that allows everyone to contribute and to derive the benefit from being members of society has now been fearfully disowned.
So, what explains the surprising courage that Bernie Sanders has shown, and the success that, so far at least, he has enjoyed? Even if his campaign were to stall from this point on, and he were to return to decent obscurity, how are we to account for the fact that his willingness to describe himself as a socialist did not immediately knock him out of the race?
The answer lies in listening carefully to what he says. He hasn’t used his socialism as either a sword or a shield. He has instead carefully explained what he means by it. He has assumed, rightly it seems, that people are willing to look behind the label – a label whose meaning has consistently been misrepresented to them – and to understand what it really means.
When Bernie Sanders says he wants “an economy that serves the interests of working people and not the billionaire class”, when he laments the plight of graduates who end up with low-paid jobs and deep in debt, when he commits to equal pay for women, he recognises that the natural tendency of a “free-market” economy is to concentrate wealth and power in fewer and fewer hands, leaving the majority to fight amongst themselves for what is left.
His message – that unless democratic government intervenes to regulate the “free” market and its outcomes, the rich will get richer and the poor poorer – is, it seems, well understood by a large swathe of more thoughtful voters. In describing himself as a socialist – someone who sees that we are all in this together and that there is such a thing as society – he also creates the advantage for himself of pointing up how much he differs from Donald Trump.
Trump is of course the archetypal “free” marketer. He is a cartoon version, a parody, of what the “free “market means. He is a self-obsessed “winner”, he hates “losers”, and he is used to grabbing what he can and devil take the hindmost.
Bernie Sanders shows that people will respond to his very different message, but only if they hear it – and that requires someone with the courage to deliver it to them. Some of that courage would not come amiss in other western democracies.
Bryan Gould
3 February 2016
A Second Bite at the Cherry
Audrey Young did us all a service when she laid out in yesterday’s Herald the origins of the Trans Pacific Partnership (TPP). She goes back to 1998 to describe how New Zealand’s keenness for a free trade agreement with the US prompted us to join a small group of Asian and Pacific countries in pressing for what eventually became a much larger group committed to free trade across the region.
As an exercise in genealogy, however, her account is sadly deficient. It does not go back far enough and it looks at only one part of the TPP’s family tree.
How many people remember something called the Multilateral Agreement on Investment (MAI)? It is scarcely recalled now because it long ago passed, unmourned, into history.
But in 1995, the MAI appeared as a draft agreement, negotiated by OECD members. As Wikipedia records “it sought to develop multilateral rules that would ensure that international investment was governed in a more systematic and uniform way between states.”
It was originally worked on in secret, but when the draft was leaked in 1997, it drew widespread criticism from civil society groups and developing countries, particularly over the perceived intention and danger that the agreement would make it difficult for governments to regulate foreign investors.
The protesters saw the agreement as a deliberate attempt to create not just a level playing field for investors (as the MAI’s proponents argued) but a free-for-all in which multinational corporations would be able to do whatever they liked and could cock a snook (whatever a snook is) at elected governments.
The strength of that global opposition, through protests, rallies and public debate, was so great that in 1998, the French government took fright and withdrew the draft. Protesters around the world heaved a sigh of relief.
But the big business interests were not done yet. Some immediately realised that there was another way to skin the cat. Instead of talking about investment, they reasoned, it might be better to talk about trade. They had recognised, in any case, that there were already in existence a number of trade agreements that contained the kind of provisions they were looking for.
The Germans, for example, unwilling to trust the judicial systems of third-world countries, had begun the practice of inserting into trade agreements with such countries provisions that disputes should be resolved in German courts, or possibly in specially constituted tribunals. And there was the precedent of the North American Free Trade Agreement (NAFTA) which had introduced in 1994 just such a provision into what looked like an ordinary free trade agreement.
It was, after all, easy to agree that free trade required that all parties should operate on a level playing field. It followed that anything that regulated or restrained the free play of market forces – and that included not just market arrangements such as cartels and price fixing but also action by governments – could be said to tilt the playing field.
What could be more natural, then, that a free trade agreement should include provisions to allow corporations to challenge individual governments if they tried to implement policies that would make life difficult for business interests? And wouldn’t the chances of winning over public opinion be much greater if those provisions could be carefully slid into what looked like a free trade agreement, since didn’t everyone think that free trade must be a good thing?
That is why, under the TPP, attempts to organise the market, through producer cooperatives like Fonterra and Zespri, or monopsonistic buying arrangements like Pharmac, are under threat. That is why a government that wanted to pursue policies in the interests of better health or protecting the environment could find itself before an international business tribunal at the behest of international companies that argued that such policies might reduce their profits.
The TPP is, in other words, a renewed attempt to succeed where the MAI failed. Globalisation has, after all, proceeded apace since 1998, and today’s voters are now much more used to the idea that business interests must always prevail – even over democratically elected governments.
It is the TPP’s dual parentage that makes it not just a free trade agreement (albeit one that delivers surprisingly few free trade benefits) but also a charter for multinational investors. The pity of it is that there is of course a pressing need for an international agreement on the rights and duties of international investors – a charter that establishes the duty to observe the laws and regulations of the host country – but the TPP takes us in the opposite direction.
It is that dual parentage, too, that explains why so many commentators on the TPP talk past each other. Those who see nothing but a free trade agreement proclaim its benefits; those who look deeper and understand the genealogy warn against the loss of democracy.
The disputants, though, are not all well-intentioned, even if misguided. The people we should really be worried about are those who understand the situation perfectly and who talk the language of free trade while deliberately seeking a much less benign outcome.
Bryan Gould
1 February 2016
Covering All Bases
It is one of the peculiarities of a Westminster-style constitution that the power to conclude international treaties rests exclusively with the executive – in our case, with the Cabinet. The Trans Pacific Partnership (TPP) is no exception. While a National Interest Analysis will be prepared by the Ministry of Foreign Affairs and Trade, and will most likely be considered by a Select Committee, our elected representatives can – if the government wishes – be totally ignored.
This constitutes not only a potentially damaging side-lining of parliament but also a denial of democracy itself; it continues a process that has been throughout characterised by secrecy and the contemptuous refusal to take any account of public opinion.
Yet it is clear that the TPP is not just a run-of-the-mill trade agreement but a major concession of the powers of self-government to large, international (mainly US) corporations. The treaty provides those corporations with the power to over-ride elected governments and to re-write the laws of this country in their own interests. There can be no set of issues that should more importantly require the consent of parliament and people.
It is not as though these worrying downsides are to be offset by major trade gains. Our negotiators, having boasted of the improved access we would have for our dairy products, stood by impotently when the crunch came and our interests were almost totally ignored by the big boys. As Joseph Stiglitz, the Nobel Prize-winning economist, pointed out in these pages, the TPP is just about the worst “trade agreement” that can be imagined.
It is little wonder then that those who have taken the trouble to understand the issues and who are concerned at their implications should have looked for other aspects of our constitution that might come to their aid and ensure that the public does not sleep-walk into giving up its powers of self-government for no good reason.
A petition has accordingly been drawn up and signatures invited; the petition is to be presented, not to parliament, since that would be pointless, but to the Governor General. On taking his oath of office, Sir Jerry Mateparae undertook to protect the proper government of this country; the petition invites the Governor General to use his constitutional powers to do just that – to act as a constitutional guardian and to refuse assent to legislation that fails to uphold the rule of law and the principles of responsible government.
On the face of it, the petition would seem to stand little chance of success. Governors General are normally careful to avoid becoming involved in controversial issues and will leave political questions to the government of the day. But there are precedents, in other Commonwealth countries – Canada and Australia – for Heads of State intervening in matters that were seen to be of sufficient importance.
It is a fair bet that the organisers of the petition had no realistic expectation that Sir Jerry would respond positively; all they were hoping for, no doubt, was that he would agree at least to receive the petition and that the resultant publicity would help their cause in some small way.
But Sir Jerry did not respond positively – indeed, he did not respond at all; he may not even be aware of the petition’s existence. The letter to him from the organisers, asking him to receive the petition, was replied to by his Official Secretary – one Gregory Baughen. Mr Baughen made it clear that he would not even ask the Governor General to receive the petition, let alone act on it.
Who is Gregory Baughen? Until a year ago, he was a senior staff member of the Department of Prime Minister and Cabinet, and the head of the National Assessments Bureau, one of the three main intelligence organisations. He was, in other words, a senior member of the executive with special responsibility for a range of security and intelligence matters.
It is this official who has now been transferred across to a quite different, and supposedly independent, part of our constitution. The Governor General’s office is, in principle, above politics, but it now seems to be managed by someone who is best regarded as a representative of the executive. The nature of Mr Baughen’s appointment and his refusal to allow the Governor General even to receive a petition that is arguably on a matter of national (rather than party political) significance suggests that the authorities are anxious to cover all bases, and to take no chances.
Not content with conducting negotiations in secret, and with excluding any consideration of public opinion, the attempt has been made to close down even a scintilla of publicity that might indicate a degree of public concern. Even the public signing of the TPP in New Zealand on 4 February is being so carefully managed that we know about it only because the news was leaked in Chile.
Democracy is necessarily at times a messy and discomfiting business. But when such care is taken to deny it, we should be truly worried.
Bryan Gould
13 January 2015
Is All Fair in Love and War – and Politics?
Many people will agree with the old saying that “all’s fair in love and war”. Others, however, would be inclined to add “and politics” – a view that certainly seems to be taken by some politicians.
I have never accepted the notion that the ordinary principles of decent behaviour should for some reason be suspended when it comes to politics. Someone who lies and cheats in politics is no less a liar and a cheat. Indeed, such behaviour in politics is arguably an even greater offence than it would be elsewhere, since it is brazenly committed by those who owe a duty of trustworthiness to the public, and its significance is likely to have much wider connotations.
There is, nevertheless, no shortage of politicians ready to defy the normal conventions and to behave irresponsibly and dishonestly for the sake of personal or political advantage. The latest recruit – and on a massive scale – to these disreputable ranks is the US Republican presidential hopeful, Donald Trump.
Mr Trump is a colourful character, and nothing wrong with that – though one might have thought that his deliberate cultivation of an image more appropriate to a fairground might have been a disadvantage.
But where he has distinguished himself – if that is the right phrase – is in his readiness to make snap judgments in the most extreme terms on issues that surely require more careful consideration.
Donald Trump seems to have calculated that the only thing that matters is that he should stay in the headlines. He may insult women and virtually every kind of foreigner; he may propose outlandish “solutions” to complex problems, such as building a wall across the whole US-Mexico border to keep out Mexican “rapist and murderers” or banning entry to the US of anyone who could be described as or claiming to be “Muslim”; but his concern is not to make sense but to make news.
This leaves us with a dilemma. Is he to be taken seriously, or is he just a buffoon? The opinion polls suggest, for the time being at least, that he needs to be taken seriously. But that raises a different question. Does he do and say outrageous things in order to capture the headlines – is he, in other words, just a demagogue prepared to say anything – or, even more worryingly, does he really believe what he says?
It is a measure of how self-absorbed a large chunk of the American public is, and of how little they are aware of the world beyond their borders, that they seem completely unaware of the dire picture painted of their public life by the possibility that a Donald Trump could be elected to the Presidency. The rest of the world can only look on in disbelief at the prospect of the free world being led by such an apparently irresponsible loose cannon.
Before we become too self-righteous, however, we should acknowledge that our own public life is not immune from political leaders prepared to act – even if on a substantially smaller stage than Donald Trump’s – in a way that falls short of the standards we might reasonably expect. We might, sadly, not be overly surprised that this is the case – but what is perhaps surprising, and certainly disappointing, is that when such a lapse is brought to the attention of the public, and even more so of the media, the consequences for the wrongdoer are minimal.
This certainly seems to have been the case with the return to Cabinet of Judith Collins. The response has been, in general, a tolerably warm welcome for the return of someone seen as a repentant sinner. The “political comeback of the year” has been portrayed as a matter for congratulation. Her supposedly admirable qualities as a politician – exemplified by her cultivation of the sobriquet “Crusher” – have been celebrated. There is even renewed talk of the possibilities of her ascending to even higher office.
This is surprising, not just because of Judith Collins’ manifest errors of judgment and policy as a Minister (just think of Serco’s contract to run Mt Eden prison), but also because we know quite a lot about her approach to politics. Most people will not have read Dirty Politics but the journalists certainly will have done. We don’t need to rely on hearsay or reportage to judge Judith Collins, because we can turn (for good or ill) to the words she herself actually used in e-mail correspondence with Cameron Slater and others.
No one reading that correspondence can be in any doubt about the distorted view of politics, and political life, held by the returning Cabinet Minister. A political career is, according to this view, not a matter of principle and service, but of bitter and vindictive in-fighting, requiring dirty tricks, ambushes and plotting, all expressed in the language of the gutter.
Before we cast stones at other people’s glasshouses, should we not expect those who report on our own public life to provide us with the whole picture?
Bryan Gould
11 December 2015